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Support the economic policies proposed by your nations's political leaders? A quick example involving the common sickness known as "rent control" might illuminate how nearly all government economic policies are sick.Consider two tenants, one who lives in San Franciso and is retired, another who lives in Hayward, and commutes to work in San Francisco. The San Francisco retiree is paying $1,000 a month for his rent-controlled apartment.Without rent control, the Hayward commuter would bid $1,200 dollars a month to lease the apartment, the San Francisco retiree would say "to heck with that, I'm not paying $1,200," and they would swap residences.It looks like the rent has risen, but look again. The Hayward commuter was paying $500 to live in Hayward, and spending another $800 in time, gas, wear, and tear, commuting. So his rent has dropped $100 to $1,200!Has the San Franciso retiree's rent risen? Not necessarily. It is quite possible he was indifferent to living in San Francisco for $1,000 a month, or living in Hayward for $500 a month. His rent may have gone sideways.What is absolutely, 100% certain, however, is that the commuter's rent has dropped more than the retirees "rent" - including his cost of living in his second-choice city - has risen. Otherwise, the retiree would win the bid.So, suppose we run the process in reverse, from the optimal recombination of resources, to the incumbency created as a result of rent control. It is easy to see, the rent has actually gone up under the rent-control!And this even ignoring the fact that they could both live in San Francisco, if the full price signal was allowed to pass through to developers, and if there weren't silly open-space regulations voted for by people who choose to live in cities!What people generally miss who control prices - or who regulate any economic activity for that matter - is that the person willing to pay the "higher" price is usually paying a lower price than his invisible alternative.So, if somebody buys a stock from a corporate insider selling, for example, that person is generally getting a better price than if nobody with any information was selling the stock at all. "Opportunity control" would be a better term.It is hard to see how bubbles could form without barriers to entry. You'll never make tulip bulbs divide at an infinite rate but, if you didn't have to navigate the SEC obstacle course, the supply of bogus stocks would have been infinite.Viewed in this light, all the SEC did was restrict the supply of bogus stock, to prop up the price, while labeling such bogus stock as non-bogus. Without the SEC restricting entry, we could have had 10 million WCOM's in 1998.And, since it costs nothing but a phone bank to manufacture bogus stock, endless people would have competed to sell it to you, running the price straight down to zero before they even came off the starting block.MP

QuoteAnd, since it costs nothing but a phone bank to manufacture bogus stock, endless people would have competed to sell it to you, running the price straight down to zero before they even came off the starting block.Kind of like the argument that Laws, not law breakers create black markets?Only by making an activity illegal do you allow someone to cash in on their willingness to break the law. I guess we either can repeal securities laws, learn to live with frauds or push the downside for breaking the law so far down that it outweighs any possible upside. I'm indifferent.

We have gone around about rent control before, so I'll keep it short. I agree that all modern rent control experiments have failed. Some were well-designed but used badly, some were misconceived from the beginning. But I maintain it is possible for an enlightened dictator to improve efficiency through intelligent rent control. Zoning, which is really a variant of rent control, has been generally successful.The problem is that individual landowners maximizing their income does not lead to good urban design. The most efficient use of my property might be a slum tenement: move in one person for every 20 square feet and spend nothing on maintenance costs. That creates enormous costs for the city, but I don’t pay those. In principle, the city could charge me taxes based on the cost of my building, but it’s more practical to specify minimum occupancy standards and maximum rents. Or, if I own a suburban tract inside the city limits, I can toss up a bunch of homes and then use them to demand the city pay for roads, schools, water, sewer and so on. It might have made more sense for the city to organize things differently. Again, cities try to make developers pay the cost, but that doesn’t always work well.Although rent control has failed, the absence of rent control is not much better. Look at any modern city and you will see beautiful, expensive homes and buildings now decayed into slums. People, businesses and services are not located well, so you have congestion and inefficiency. Natural disasters inflict far more damage than necessary.

Aaron, you make me think of a common gripe at US National Parks. They spend all this money building trails that lead away from the road, and toilets and trashcans along those trails. Next thing, all these people want to drive into the park, to park at the trailhead, and go on a picinic. So now it's too crowded, so we have to make the park off limits to cars, and regulate visitors with an inconvenient bus system.If the city spends so much on roads and public works that all the landlord has to do is build something to complement the infrastructure, and then the city tells him he can't sell complements, that's like the city buying hotdogs, and then telling the landlord he can't go into the mustard business. The city is wasting taxpayer money making hotdogs that you're not allowed to enjoy.MP

That may be the American experience but the British equivalent of zoning is a much less optimal process.DominiConnor

I'd be interested to hear examples of bad experiences in British "zoning" or planning permissions.

QuoteOriginally posted by: MobPsychothat's like the city buying hotdogs, and then telling the landlord he can't go into the mustard business. The city is wasting taxpayer money making hotdogs that you're not allowed to enjoy.No, it's like the city deciding where and when to sell hot dogs, rather than guaranteeing every mustard-seller a market.The difference is if I walk around all day selling mustard packets and make no money, no one cares. But if I sell hundreds of homes in a subdivision without water, sewer, schools, roads, police or fire protection; either someone will bail the residents out; or no one will. Either outcome is bad.I agree that all parks, not just national parks, have to trade off between making the park convenient and keeping it unspoiled. This is usually called the "baseball fields in Central Park" debate. You can try to solve the problem through market forces (like Disney buying up all property in easy driving distance of their Orlando park) or government action.